Liquidation Fee

The liquidation fee, also known as the "liquidation penalty," is applied to protect the protocol. When a user opens a long position, a liquidation price is determined, and a 2% liquidation penalty is added to this price. This means the user will be liquidated at a slightly higher price than expected.

The penalty serves two main purposes:

1. To safeguard the protocol against risks if liquidation is delayed, potentially causing bad debt.

2. To incentivize liquidators, dip accumulator users, and USDN token holders.

This penalty is directly included in the calculation, so the user always sees the final liquidation price, including the penalty.

Penalty Distribution

If the Dip Accumulator Is Not Triggered:

• Liquidator costs and bonus: A portion of the penalties covers the liquidator's costs, as liquidating a position involves expenses. Additionally, a small bonus is provided to incentivize users to liquidate positions promptly, ensuring dead positions do not remain in the protocol. (Learn more about liquidations here)

• Vault allocation: The remaining penalties are allocated to the vault, reinforcing the protocol and benefiting USDN token holders.

If the Dip Accumulator Is Triggered: (Click Here for More Info)

• Dip accumulator rewards: 60% of the penalties are distributed as rewards to users who provided liquidity to the dip accumulator, proportional to their contributions.

• Liquidator costs and bonus: A portion of the penalties is used to cover liquidator costs and provide a bonus, as described above.

• Vault allocation: The remainder is allocated to the vault.